|The headquarters of Tong Yang Securities in downtown Seoul. (The Korea Herald file photo)|
Faltering Tong Yang Securities is likely to be offered up to the merger and acquisition market this week as Tong Yang Group takes steps to quickly auction off its brokerage arm.
Tong Yang International and Tong Yang Leisure, the brokerage’s top two stakeholders, are now preparing to announce a detailed sale plan as early as this week, sources close to the deal said.
The mid-sized brokerage firm with some 8.84 trillion in assets has been on the verge of collapse as its customers pulled out nearly 6 trillion won ($ 5.6 billion) in less than three months since the group’s default in September.
Tong Yang Group is reportedly seeking to contact potential buyers at home and abroad, while rumors suggest several firms, including Taiwan’s Yuanta Securities, have already shown an interest in the bid.
According to industry sources, the Taiwan-based firm had already completed an on-site inspection of Tong Yang, though it was not able to be reached for comment by The Korea Herald.
KB Financial Group had also been linked to the bid, but the country’s second-largest banking group officially denied the possibility last week.
Market analysts believe that the sale of Tong Yang Securities is likely to be riddled with uncertainties, in particular over the risks of compensation for fraudulent sales.
“The main obstacle is the risk of a massive amount of compensation,” Son Mi-ji, a Seoul-based analyst at Shinhan Investment Corp., told The Korea Herald, referring the suits filed by thousands of individual investors against the brokerage firm.
Tong Yang Group has issued bonds worth a total of 2 trillion won since 2007 to pay its debts. And the brokerage has allegedly disguised its difficult position to sell commercial papers and corporate bonds to investors without explaining the potential risks, incurring financial losses for more than 20,000 individual investors.
The Financial Supervisory Service, the nation’s financial watchdog which is currently looking into the case, is expected to conclude its investigation during the first half of this year.
Reports predict the financial regulator may also agree upon the amount of compensation for the investors by then.
“But at the moment it is unclear how much the reimbursement rate would be, and it may prevent potential buyers from emerging immediately,” Son added.
Market insiders estimate that the possible sale price of the brokerage may reach between 200-300 billion won, considering its damaged credibility.
Still, Tong Yang can be attractive as the acquisition of the mid-sized brokerage firm, in particular, has a specialization in asset management, according to Seo Youg-soo, senior analyst at Kiwoom Securities.
“But the bid process will be largely depending on the (authorities’) level of the compensation. I think the faster the authority makes its decision, the more interests from potential buyers,” he added.
By Oh Kyu-wook (firstname.lastname@example.org)